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Last week, one of our country’s most storied corporations officially turned 100. And it just so happens to also be the firm that started my love affair with both the stock market and dividend payments.
The company? International Business Machines, or IBM as it’s more commonly known.
Today, I want to tell you a little bit more about this interesting corporation … my personal history investing in it … and what important lessons we can learn from IBM right now.
From Cash Registers to Supercomputers …
What we now know as International Business Machines was once called the Computing-Tabulating-Recording company. And as the name suggests, the company’s earliest products were calculators, cash registers, and other similar devices.
Eventually, however, the firm made its transition into the products that we now most associate it with.
With development help from Harvard University researchers, IBM debuted the Mark I computer in 1944. And within ten years, it was selling computers based on vacuum tubes to private customers … along with its extremely popular typewriters. IBM’s very first desktop computers were not far behind, launching sometime in the middle of the 1960s.
Today, the company holds more than 20,000 patents covering everything from the magnetic strips on our credit cards … to UPC barcodes … to ATM technology … and a whole host of other technological innovations.
My own personal history with IBM started during the late 1980s. I had seen the movie Wall Street and although I was only in grade school, I was fascinated with investing. Heck, I used to carry the business section of our local newspaper to school just to pore over all those mysterious ticker symbols and stock quotes!
That’s about the time I decided to invest some real money in the market. My parents had always fostered a sense of financial independence — by teaching me to save, establishing a bank account in my name, and through other basic lessons. But they had certainly never bought stock in a company before.
“Go through the phone book and call up some brokers,” my dad advised. And so, tentatively, I did.
After a few awkward conversations, I found a local broker who took my squeaky voice seriously. He said as long as my dad would serve as the custodian on the account, I could start investing with him.
I had heard all about “blue chips” and how they were the very best companies in America. And I also believed in technology so I opted to put all of my money — saved from recent special occasions and holidays — into five shares of IBM. To this day, I can remember the exact purchase price — $155 a share.
Unfortunately for me, the PC “clone war” was right around the corner. And as investors became more and more concerned about how all this competition would affect IBM’s profits, I watched in horror as my shares plummeted.
It was a valuable first lesson in the concept of risk — because it taught me that even the very biggest and best stocks can lose you a ton of money.
Of course, long after I had sold the shares for a loss, they rebounded and went on to double my initial purchase price many times over. That taught me another important lesson.
As did one other curious fact about my ownership of IBM — as a shareholder, I received regular dividend payments!
What an exciting thing to watch little payments coming in. And what a real reminder that — even as an elementary school student — I was an actual OWNER of one of the world’s largest and most important businesses!
And Looking at IBM Today Can Teach Us All
A Few More Important Things About Investing …
For starters, let’s talk about IBM’s dividend payments — the company has been making them, consistently, since 1913!
I have a feeling that fact alone would surprise a lot of folks. Not just because IBM is a tech company, but also because the company had astounding growth during the last century.
You see, it’s a common misconception that dividends signal a company’s most innovative days are behind it. That they indicate management doesn’t have any better use for cash. That only boring, slow-growth dinosaurs pay dividends at all.
But nothing could be further from the truth. And it’s an especially important lesson right now — as a new crop of tech companies find themselves sitting on cash, going public to much fanfare, or just trying to figure out who they want to be when they grow up.
Meanwhile, look at the “old tech guard” — the Ciscos, Intels, and Microsofts. They’re all paying and increasing their dividends now, and I expect that trend to continue. And it does NOT mean that they will stop finding new ways to reinvent their businesses going forward — just consider Microsoft’s pending purchase of Skype.
Heck, you might argue that today’s “mature” tech companies are in the same place that IBM was back in the 1960s or 1970s!
So while I’m not saying IBM is a screaming bargain right now, I am saying its centennial should remind us of a few important things:
First, America has a long history of ingenuity, and I believe our brightest minds will continue to make important new discoveries going forward.
Second, while there are always speed bumps along the way, our country’s best companies are truly “built to last” … both as businesses and investments.
And third, dividend payments are not a barrier to a company’s future growth … in fact, they may simply be a reliable indicator of both longevity and long-term investment potential.
Best wishes,
Nilus
P.S. With Father’s Day just behind us, I’d just like to publicly thank my dad for all the support he’s given me over the years, and for helping me to establish that very first brokerage account way back when.
And I’d also like to point out that I’m now doing my best to help him make better investments for his own retirement right now. To learn more about that, just click here.
